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Richard Branson on Convincing Investors to Fund Your Tech Start-up

No matter how qualified the founders are most will not succeed.

Richard Branson

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Richard Branson Entrepreneur

Q: How do you filter all the invitations to invest that you receive? Do you focus on just a few issues? – Felipe Fleiderman V., Chile

In recent years, I’ve admired the speed at which some Web-based start-ups have launched their companies and found their customers.

After all, we at Virgin love to shake up stodgy industries, giving customers a better experience in unexpected ways, like redesigning our Virgin Money banks so that customers can work, hang out and hold meetings in the comfortable lounges.

With the help of my terrific investment teams in London and New York, I’ve invested in a few non-Virgin start-ups in recent years. Choosing among them requires thought and care, because no matter how qualified the founders are or how much they have thought through their business plan, most will not succeed. But, over the years, I have learned to look for the same things in start-ups that I do in ideas for Virgin companies.

The list of our investments shows what I value in a company, and why these inspire me. And for entrepreneurs seeking investors for their tech start-up, here are five questions you need be able to answer “yes!” to:

1. Does your company offer a smart, simple solution that improves customers’ lives?

If I understand a start-up’s product or service on first glance, then customers will too – and if it solves a problem that needs fixing, there’s a good chance that some will buy it.

That’s why I invested in Square two years ago. It’s a company that was started by the Twitter co-founder Jack Dorsey when he was trying to help his friend, a glass-blower who wanted to sell his work but didn’t have a credit card machine.

Square’s system allows entrepreneurs to accept credit card payments via smartphone. The company says it now handles about $12 billion in transactions annually, and in 2012, it announced a deal with Starbucks, so that customers can pay for their coffees and other items using the Square Wallet app.

2. Is your company’s use of technology disruptive?

There are many companies that dress up their products by putting lights and screens on them, but don’t exactly make a difference to anyone’s everyday life. Such products may attract attention, but unless the technology adds easy functionality, the customers won’t be back a second time.

Hailo, the yellow taxi cab app, is a great example of a disruptive technology, since it’s so more efficient and responsive than our current options: trying to wave down a passing cab or placing a call to the cab company.

We chose to invest in this company because it lets passengers hail free taxis on nearby blocks with their smartphones. It helps cabbies too, since they spend about 40% of their time driving around looking for passengers.

3. Does your company offer customers greater choice and better access?

However small a company, its founders should try to expand people’s opportunities and choices.

The online coding tool Codecademy is giving anyone with an Internet connection the chance to learn basic programming skills for free. With its easy-to-use interface and lessons drawn from real-world examples, Codecademy is outshining the competition.

I decided to invest in Codecademy because many people need and will benefit from access to such skills, especially women who hesitate to enter such a male-dominated field – one in which most students tend to be men as well. Already, over 35% of Codecademy’s users are women.

4. Does your company’s product or service encourage customers to share their work or experiences?

The development of Web-based applications has enabled collaboration on a scale that was unimaginable 30 years ago. In almost every industry, more sharing is helpful and useful: between friends and family members; between colleagues, and sometimes between customers.

The best way to encourage sharing is make it fun, which is why businesses like Pinterest have found such success. This beautiful platform is all about inspiration and discovery, providing people with a quick, easy, entertaining way to share photos. It has rapidly become a household name – and inspired us to invest in their company.

5. Does your company care enough about people and the planet to use business as a force for good?

Every company can make a difference. New businesses can tackle local problems, growing businesses can tackle national problems, big businesses can tackle global problems. One example that stands out is Twitter, which activists have used to evade authoritarian leaders’ controls on communication – it has helped to topple governments.

I use Twitter to generate awareness for causes that are meaningful to me and others, like ending the war on drugs, and this is why I’ve invested in this company.

Similarly, we’ve funded Tumblr, which is one of the most popular Web destinations in the United States, and it also gives people a digital platform where they can express themselves.

These are just a few of the promising start-ups that have helped me to learn more about the challenges and opportunities faced by tech companies today.

Those that provide services that help entire communities may have built long-lasting businesses that will be influential for years to come. Does yours?

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How to Position Your Start-Up as a Sound Investment

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Richard Branson is the founder of the Virgin Group and companies such as Virgin Atlantic, Virgin America, Virgin Mobile and Virgin Active. He is the author of "Business Stripped Bare: Adventures of a Global Entrepreneur."

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Attracting Investors

The Investor Sourcing Guide

How to attract and obtain investors to your established, high-growth business.

Greg Morris

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As an established, high-growth company, you may find that you need to source capital, identify a mentor, or work closely with other affiliates to prosper. In this case, partnering with an investment holding company can be a valuable growth tool.

So, what should you do if you want to be acquired by a holding company?

Read this.

1. Research everything

If you’re considering a long-term investment partnership, make sure you conduct substantial prior research. There may be many potential investment partners out there, but each has specific venture and industry directives. Get to grips with these.

Related: Is Venture Capital Right For You?

2. Be candid with yourself

The amount of capital that you need will affect which holding company you choose. In particular, you’ll need to understand what your risk profile looks like relative to the returns you expect to provide. This will also help you to source, entice, and keep the attention of the most appropriate partner.

3. Identify your must-haves

Any investment partner you choose is likely to be able to provide you with funding, a broader network, and economies of scale. Beyond these, however, you’ll need to decide on your most important benefits (must-haves), so you can target the companies that can offer you the best fit.

4. Spell out your funding plan

You’ll need to be very clear on how you plan to spend the funding you get from your investor. This plan should stipulate, in particular, how you plan to grow.

Related: 5 Key Questions To Answer For Raising Funding

5. Scrutinise each investor

Make sure to analyse your potential investors’ investment history, so you can get a clear idea of where your interests are aligned. Look specifically at things like:

  1. Where investors’ get their funding
  2. What their investment track record looks like
  3. What their investment directives are
  4. Their appetite for risk
  5. The returns they usually aim for

The crux of the matter

Research is essential, no matter which holding company you hope to be acquired by. This will help you to find, attract and retain an investor who gives you the funding you need, and lends you the support to be innovative, productive, and profitable.

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Attracting Investors

6 Great Tips For A Successful Shark Tank Pitch

Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes.

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Whilst most of us are unlikely to appear on television shows such as Dragons Den or Shark Tank there is a lot we can take out from watching these programmes. Entrepreneurs will often need to promote their businesses to prospective customers, lenders, investors, employees and even suppliers.

All stakeholders would like to know with what and whom they are dealing. They will need to assess risk and will try and evaluate the business against others who are competing for those same funds.

1Know Your Product

You should be able to describe your business within 60 seconds, in a confident and positive manner. Let the stakeholder know what particular problem your business solves which makes it viable and attractive.

Your brand and how you intend to develop it is important in determining whether they will invest or lend you money. Share critical information with them such as large customers, patents and trademarks and details of forward orders.

If you are looking for funding or investment, make sure you have the relevant paperwork to back up what you are saying.

Related: 10 Tips From The Dragons Of Dragons’ Den SA

2The Numbers

You must have your numbers at your fingertips.  A true and successful entrepreneur will know his numbers instinctively and be able to recollect and present them convincingly. Stakeholders want to know your turnover (sales) over the last couple of years, your gross profit and net profit.

Investors want to know what they are investing in and whether there is strong potential for their money to grow. Lenders will want to assess their risk — how are you going to repay the money? Moreover, you as the business owner, need to be sure that you will be able to make the required repayments.

You must know what your margin is, as this will largely determine your viability as a business. Margin or gross profit is the difference between the selling price of the goods and their cost and is usually expressed as a percentage.

3Know What You’re Asking For

asking-for-business-funding

Be clear as to the size of the investment you want to give away and how that determines the ‘valuation’ of the business. Therefore, if you wish to raise R200 000 for 10% of the business, that means you value the business at R2m — be sure you can back that up or you will get taken apart.

4Have a Business Plan

The best way to fully understand your business is by way of having a detailed business plan, which has been prepared whilst working through every facet of your business, from the original idea to the finished product.

As the business owner, you need to live this business plan and be able to use it as your daily guide to success. Develop it, change it where circumstances require it, but most importantly know it and understand it.

In this way, you will be able to deal with most of their questions, be they about marketing, research, international expansion etc. It is also a good idea to know your competition and what they are up to.

Related: Dragon’s Den Polo Leteka Gives Her Top Tips To Attract Growth Capital

5Sell Yourself

In most interactions, you the entrepreneur, are selling yourself. Whether it is an investor, lender, customer or prospective employee, it is their impression of you and your capabilities which ultimately determine whether they want to work with you.

Be confident, defend your position where required, as you will need to parry some blows but do not behave arrogantly.

6Learn From Your Mistakes

Many entrepreneurs who have presented to the Shark’s Den and not been able to garner investment have turned their business into great successes. You need to be able to learn from the experience, and if rejected, bounce back even stronger.

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Attracting Investors

3 Things You Must Have In Place To Get That Start-up Bank Finance

If you’re planning to secure funding for your start-up, you need to put the right foundations in place.

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The South African landscape for raising finance is tough for any business, with stringent lending regulations. Here are three areas to focus on as you set up your start-up to ensure you’ll qualify for a loan or equity funding.

1Securing a Market

Most SMEs I have mentored or advised start with expressing how big the total market size is for their product or service, but, while this is important to understand, the big question is: What percentage of that market will you attract and how?

Look at the ‘how’ first and work your numbers backwards. For example, if you secure a R10 million contract to supply an item that has a market size of R37 billion you are capturing only 0,03% of the market. However, if you’re able to cover your monthly expenses (including your loan repayment) and make a profit, that’s what counts. You should be able to show this contract or letter of intent to procure, which shows how and where you will find this market.

Related: The One Question You Must Be Prepared To Answer When Pitching Investors

2A Strong Team

When you’re starting out you’re likely to be the sum total of your team. If you’re going down the entrepreneurial journey alone, make sure you have identified who will mentor and guide you through the areas you don’t have competencies in and cost this into the business start-up and running costs.

Focus on who in the business is going to:

  1. Sell and market: Do they have the necessary skill, network, product and market knowledge?
  2. Control the money: Are they financially savvy and can they make sure that money is being used for the right things?
  3. Operate: Who has done this before? Can this individual manufacture the product or arrange the supply of goods or services, ensure quality control and sound human resource management?

3Compliance

Formalising your business is costly but necessary. If you don’t have a formal entity, shareholders agreements, loan agreements, financial statements, management accounts, tax compliance and so on, you will come short when looking to raise finance.

Understand these costs upfront and include them into your start-up budget — this will save you a lot of pain in the long run.

Related: 3 Ways For Social Entrepreneurs To Access Fundraising

The truth is that finance is available for women who have the right business ingredients just as much (if not more — in the South African context) as it’s available for men and just as with men. And, resources such as these help to unpack and guide the core fundamentals that are needed to make business bankable/fundable.

Then it’s all about implementation and staying on track to translate all that you’ve done and all that you wish to do in a bankable business plan, and approach the relevant funder for your needs. The right business mentor can certainly help you on that journey.

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